These were received from Councillors Mrs. P. Drake and S.J. Griffiths.

283 MINUTES -

RESOLVED - T H A T the minutes of the meeting held on 25th July, 2017 be approved as a correct record.

284 DECLARATIONS OF INTEREST -

No declarations were received.

285 AUDIT OF THE 2016/17 FINANCIAL STATEMENTS - REPORTING TO THOSE CHARGED WITH GOVERNANCE (MD) -

The Council is responsible for the preparation of the Financial Statements that presents fairly its financial position as at 31st March 2017. Huw Vaughan Thomas of the Wales Audit Office in his capacity as Auditor General for Wales is responsible for reporting whether, in his opinion, this is indeed the case. The audit was undertaken by the Wales Audit Office, as the Council's Engagement Lead, on behalf of the Appointed Auditor.

The Statement of Accounts for 2016/2017 was prepared by 30th June 2017, in accordance with the statutory timeframe.

With the audit of these Financial Statements now substantially complete, a report detailing the key matters arising from the audit must be reported by Auditor General for Wales to those charged with governance, in accordance with the International Standard on Auditing (ISA 260) this is attached at Appendix B. In line with its terms of reference, the Audit Committee represents the appropriate body to which this report must be communicated.

The latest 2016/17 Statement of Accounts incorporating all currently agreed amendments was attached at Appendix A to the report.

The report of the Auditor General for Wales and the final Letter of Representation was attached at Appendix B.

The Head of Finance (Section 151 Officer) in referring to the report, made reference to the draft Statement of Accounts previously reported at the last meeting and at that time the matters considered by the Committee. The report under consideration now related to the Statement of Accounts post audit and the provisional findings of the WAO on behalf of the Appointed Auditor on the audit of the Financial Statements which were:

WAO had no concerns about the qualitative aspects of the Council's accounting practices and financial reporting. They found the information provided by officers to be relevant, reliable, comparable, material and easy to understand. The draft accounts submitted to WAO were found to be of good quality. WAO concluded that accounting policies and estimates were appropriate and financial statement disclosures unbiased, fair and clear. WAO concluded the working papers provided during the course of the Council’s audit were of good quality.

They did not encounter any significant difficulties during the audit. There were no significant matters discussed and corresponded upon with management which needed to be reported.

There were no other matters significant to the oversight of the financial reporting process that they needed to report on.

They did not identify any material weaknesses in the internal controls.

There were not any other matters specifically required by auditing standards to be communicated to those charged with governance.

At this juncture, the Chairman invited Mr. Veale of the WAO to comment on the WAO findings. Mr. Veale in referring to the Audit of Financial Statement Report attached at Appendix B drew the Committee’s attention to Appendices 2 and 3 contained therein. He also highlighted the key areas for the benefit of the Committee and reminded Members that the Auditor General was responsible for providing an opinion on whether the Financial Statements gave a true and fair view of the financial position of the Council at 31st March, 2017 and its income and expenditure for the year then ended. He further indicated that the WAO did not try to obtain absolute assurance that the Financial Statements were correctly stated, but adopted the concept of materiality. In planning and conducting the audit, the WAO sought to identify material statements in the Council’s Financial Statements namely, those that might result in a reader of the accounts being misled. Separately, the quantitive level at which the WAO judged such mis-statements to be material for the Council was £3.5 million. Whether an item was judged to be material could also be affected by certain qualitative issues such as legal, regulatory requirements and political sensitivity.

At this juncture, the Chairman asked Mr. Veale to clarify how in terms of materiality the figure of £3.5 million was derived. In response, Mr. Veale indicated that this was a quantitive calculation based on 1% of the Council’s gross expenditure. This was a WAO standard and was an accepted and consistent practice by auditors across the UK. In regard to materiality, this enabled the WAO to do two things. Firstly, planning which allowed the concentration on large transactions based on a sample size (uncorrected). Secondly, in regard to mis-statements for these to be identified and agreed with Council officers (identified within the WAO materiality boundary).

A Member asked Mr. Veale to explain the uncorrected mis-statement in regard to the figure of £1.2 million in relation to contractor retention that had not been recognised in the Financial Statements as a Capital Creditor. In response, Mr. Veale indicated that the WAO was unable to reach agreement with Council Officers on how this was translated within the Statement of Accounts. It was the WAO’s view that the balance may be understated, subject to valuation, however, the mis-statement had no impact on the Council’s usable reserves (Council Fund Balance). Mr. Veale went on to summarise the corrected mis-statements which were set out in Appendix 3 of the report and further indicated that none of these impacted on the Council’s Fund Balance.

At this juncture the Council’s Principal Accountant referred to the mis-statements referred to in Appendix 3 of the WAO report in the order as presented in the document, including the stated reasons for the associated corrections to the Financial Notes. In regard to Note 23 - Letters, she indicated that the amendment had been made to reflect the inclusion of the Central South Consortium due to a simple accounting error of a figure being included in the wrong column of the accounts. Regarding Note 17 - Property Plant and Equipment, this related to Capital Commitments and had been amended now to include the Council’s Space Project and Colcot Sports facility football pitches. In regard to Note 39 - Operating Leases, the Principal Accountant indicated that the lease value disclosed had only been for one year and therefore understated as there was a requirement to disclose within the Note the lease commitment until the end of the life of the lease.

A Member referred to the other Notes contained in the summary, namely Note 16 - NNDR and enquired if there had been an incorrect charge. In response, the Principal Auditor indicated that this was a simple administrative error.

Another Member referred to Note 39 - Operating Leases and enquired of the Principal Auditor of the original figure for operating leases. In response the Principal Auditor indicated that this was £3.2 million.

The Chairman referred to Note 23 - Debtors and indicated that he could not identify the £1.5 million within the Statement of Accounts and requested the Principal Auditor to clarify. In response, the Principal Auditor indicated that this figure had been amalgamated within other accounts but, had previously been classified under Public Corporations which had been reduced with the figure now moved to Central Government Bodies.

The Chairman reminded officers that it was important for the Committee to have a note of any changes post audit so that they could keep a track and monitor amendments. In response, at this point, the Head of Finance indicated that this would be undertaken in future reports to the Committee.

A number of clarifications were sought by the Chairman and Members in relation to the following matters:

MMI (Municipal Mutual Insurance)

Foreign exchange risk

The requirement for Housing Stock to be included within the Statement of Accounts

The reason for rent arrear increases and the implications for the Council

The definition of supported and non-supported borrowing

Definition of usable receipts

Depreciation of assets (Council dwellings).

The Principal Auditor and Mr. Veale of the WAO provided appropriate responses to these areas of clarification to the satisfaction of the Committee.

The Lay Member of the Committee referred to the recent briefing session which took place on 12th September, 2017 and for the benefit of those Members who were unable to attend the briefing alluded to the impending changes to the Regulations which would have a significant impact for officers in the preparation/publication of future Statements of Accounts for the Council.

The Head of Finance in summing up indicated that as part of the financial accounts there was also a requirement to produce an Annual Governance Statement which was contained within the report and referred to the draft of the same being reported to the last meeting of the Committee. The Statement had been brought back to the Committee for endorsement and she reported that since the matter was last considered by the Committee in July, there had been no material changes affecting the information contained in the Statement.

The Chairman thanked officers and WAO representatives for their hard work in preparing the Statement of Accounts.

RESOLVED - T H A T the report of the Appointed Auditor on the audit of the Council’s Financial Statement for 2016/17 be approved and the Financial Statement including the Final Letter of Representation be recommended for signature by those authorised.

Reason for decision

The Audit Committee, as those charged with governance, had considered the results of the audit of the Council’s Financial Statement for 2016/17.

In a similar vein to the previous report considered by the Committee, the Head of Finance indicated that the Statement of Accounts for the above period had been prepared by 30th June, 2017 in accordance with the statutory timeframe and reminded the Committee that the unaudited version of the Statement of Accounts had been considered by the Committee at its last meeting on 26th July, 2017. The Financial Statements for the above period related to the Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service and had been submitted to ensure that the Committee was aware of the results of the Audit. The Committee was further reminded that the Regional Adoption Service accounts were not subject to a full external audit by the WAO, but an external return had been completed by Accountancy and Internal Audit and the Wales Audit Office had undertaken a limited assurance audit for the service.

The audit of the Financial Statements were now substantially complete and a report detailing the key matters arising from the audit was required to be reported by the Auditor General for Wales in line with the terms of reference of the Financial Statement of the Shared Regulatory Service and the Regional Adoption Service and must be subsequently approved by their respective Joint Committees and signed by the respective Committee Chairmen.

The Chairman invited Mr. Veale of the WAO to comment on the latest 2016/17 Statement of Accounts. Mr. Veale responded by indicating that the said accounts incorporated the agreed amendments which were set out in Appendix A and the Audit of Financial Statements report was set out in Appendix B to the report. He further indicated that the provisional findings of the WAO on behalf of the Appointed Auditor of the audit of the Financial Statements were as follows:

WAO had no concerns about the qualitative aspects of the Council’s accounting practices and financial reporting. They received the draft statement of accounts ahead of schedule and found the information provided to be relevant, reliable, comparable, material and easy to understand. WAO concluded that accounting policies and estimates were appropriate.

They did not encounter any significant difficulties during the audit. There were no significant matters discussed and corresponded upon with management which needed to be reported.

There were no other matters significant to the oversight of the financial reporting process that they needed to report on.

They did not identify any material weaknesses in the internal controls.

There were not any other matters specifically required by auditing standards to be communicated to those charged with governance.

In addition to the above matters there were also a number of small mis-statements that had been corrected following discussion between the WAO and the Council’s Section 151 Officer and these were detailed in Appendix 3 to the ISA260 and related to the following matters:

Value of correction

Nature of correction

Reason for correction

n/a

Management and administration recharges, along with elements of transport costs, have been presented in separate places within the Consolidated Income and Expenditure Statement (CIES) this year compared to last year. This has distorted comparator information.

A note has been added to explain this change and quantify the amount involved.

£331,000

A reclassification adjustment has been made with Note 10 (Notes to the Expenditure and Funding Analysis)

To ensure Note 1- is consistent with the primary statement

£12,000

The audit fee was entered as £nil on Note 8 but recorded correctly as £12,000 in Note 15 (audit fees). The Note 8 entry was subsequently updated

To ensure consistent presentation of information in disclosure note

n/a

A number of typographical amendments and minor narrative amendments were made to the financial statements

To improve clarity of information in the statement of accounts

In concluding he indicated that it was the intention of the Auditor to issue an unqualified audit report on the Financial Statements once the relevant Council Officers had provided a signed Final Letter of Representation.

The Committee noted that the Vale, Valleys and Cardiff Regional Adoption Service Annual Return was detailed in Appendix C to the report.

A Member referred to Note 10 on page 26 of the Appendix and sought clarification as to how the pension adjustment of £331,000 had been reclassified. In response the Principal Accountant indicated that the reclassification had been as a result of a net change relating to pension adjustments in the amount of £420,000 and previously shown against Central Department Support and reclassified to Other Income and Expenditure from the Funding Analysis. The amount of £331,000 represented interest paid on the pension’s liability.

Another Member referred to the pension liabilities of the Joint Committee and enquired which Authority was responsible for the Joint Services liability. In response, the Principal Auditor indicated that the Council, as lead Authority for the service, was required to consolidate each Council’s pension liabilities contribution within the Council’s balance sheet including other related matters.

A Member also enquired of IS19 adjustments and what these referred to. In response the Principal Accountant referred to the pension costs within the accounts paid to the Pension Fund. Cash payments had been removed (Note 11) to include payments calculated by the Actuary.

RESOLVED -

(1) T H A T the Financial Statements relating to Shared Regulatory Service and the Vale, Valleys and Cardiff Regional Adoption Service be noted.

(2) T H A T the report of the Appointed Auditor on the audit of the Shared Regulatory Service Financial Statement for 2016/17 be noted.

Reasons for decisions

(1) In acknowledgement of the results of the audit of the 2016/17 Financial Statements of the Shared Regulatory Services and the Vale, Valleys and Cardiff Regional Adoption Service.

(2) In acknowledgement of the Committee’s responsibility as those charged with governance to consider results of the above Financial Statements for 2016/17.

The report sought to provide the Committee with a detailed submission of the Council’s responses to the Wales Audit Office acting as the Council’s External Auditor which related to the requirements under the International Standards for Auditing 240 (ISA240), the primary responsibility for preventing and detecting fraud which rested with both management and “those charged with governance” (the Vale Council) which included fraud that could impact on the accuracy of the Council’s Annual Accounts.

Set out at Appendix A was the Council’s response to the specific enquires made by the External Auditor in order for them to obtain evidence of how management and those charged with governance were discharging their responsibilities.

Having regard to the content of the report and the attached Appendix it was

RESOLVED - T H A T the report be noted.

Reason for decision

In acknowledgement of the Committee’s responsibility for ensuring compliance with the requirements of the International Standards on Auditing.

288 INTERNAL AUDIT - OUTTURN REPORT - APRIL TO AUGUST 2017 (OMA/HA) -

Attached at Appendix A and B were detailed reports (including the Head of Audit’s five month position report) on work undertaken by Internal Audit so far this year. Paragraph 5 of the report set out a table which analysed the work done in relation to the above Plan (1,145 available days).

Directorate

2017/18

Audit Plan

Year

April to Aug 17

Budget days

Expected

April to Aug 17

Actual days

Delivered

Managing Director / Resources

315

131

121

Social Services

130

54

15

Environment & Housing

150

63

51

Learning & Skills

130

54

17

Cross Cutting (including Fraud & Error)

420

175

136

TOTALS

1,145

477

340

The figures show that 340 actual days have been achieved, which is less than that expected by 137 days.

As at the 1st April 2017 the overall structure of the Section is based on 18 Full Time Equivalents (FTE), of which, the Section is carrying 9.5 vacant posts at present.

The opinion contained within the report at Appendix A relates to the system of internal control at the Council and the overall control environment in place. The system of internal control is designed to manage risk to a reasonable level rather than to eliminate the risk of failure to achieve corporate/service policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. Included within Appendix B is the supporting evidence which lists all those assignments which have been commenced / completed during the first five months and where an assignment has been completed; an audit opinion has been applied.

On the basis of internal audit work undertaken so far this year, and taking into account all available evidence, it is my opinion that a satisfactory assurance level can be applied to standards of internal control at the Vale of Glamorgan Council so far to date.

In referring to Appendix A of the report the Head of Finance indicated that when the Audit Plan was prepared originally there was an assumption regarding the staffing levels available to deliver the Plan. However, since April the key issue for the service had been the level of staffing resources available which had impacted on the ability of audit to deliver the Plan. The Head of Finance referred to a revised staff structure which would now consist of 14 FTE and reflected a pay grading structure linked to qualifications to provide career progression opportunities. With the exception of one employee, all existing staff had been matched to a post within the new structure and the trade unions had been consulted throughout the process. In the short term and where vacancies existed, the Head of Service indicated that additional resources would be procured from an external agency and funded within existing budget. It was anticipated that the recruitment process to vacant posts within the new structure would be completed by the end of the current financial year.

Discussion ensued regarding the reasons for staff turnover with Members making a number of observations relating to the reasons why staff left the employment of the Council. In response, the Head of Finance indicated that the main reason for leaving was due to personal reasons of career progression. The Chairman suggested that given the context relating to staff resourcing of the service a further report to the Committee on the progress of recruitment to the new staff structure be submitted before the end of the calendar year.

The Head of Finance’s attention turned to matters contained in Appendix A (page 7) Audit Recommendation for 2017/18 and indicated that for the five month period, Internal Audit had made a total of 19 recommendations of which management had given a written assurance that all of these would be implemented. She also referred to the Internal Audit Performance as detailed at page 12 of Appendix A, which showed that the service compared favourably to the Welsh average performance.

A Member sought additional clarification in regard to the audit review relating to Leisure Equipment and Plant Security as referred to in Appendix A (page 6) of the report and enquired of reasons and the extent of the problems identified as part of the Review. In response, the Head of Finance did not have the information to hand, however, the managers had accepted the review findings and were implementing the associated recommendations. Progress on implementation of the Review recommendations would be monitored.

Having considered the report it was

RESOLVED - T H A T the contents of the report in respect of Internal Audit for the period April to August 2017 be noted.

Reason for decision

In acknowledgment of the Committee’s responsibilities to monitor the Audit Plan.

289 AUDIT COMMITTEE - FORWARD WORK PROGRAMME (HOF/S151O) -

The Committee reviewed the updated Forward Work Programme for 2017/18 which had been previously approved by the Committee at its last meeting.

The Committee, having considered the updated Work Programme as set out at Appendix A of the report

RESOLVED - T H A T the report be noted.

Reason for decision

In acknowledgment of the Committee’s responsibility for the oversight of its Forward Work Programme.